It takes money to make money. That’s what they say, isn’t it. But while “they” are right in essence, this age old adage is also something of an oversimplification. Indiscriminate, poorly informed or reckless spending never made anyone’s fortune. Perhaps that’s why so many nascent entrepreneurs are so wary of heavy investment, even if there’s a good chance that it could facilitate meaningful growth. When it comes to buying software or hardware, the cash conscious small business owner has a tendency to spend modestly and learn to make do with what they have. While this might seem perfectly cogent at first glance, businesses run the risk of hampering their own growth and curtailing their productivity if they maintain this practice year after year. This is the 21st century, after all, and the marketplace is as fast paced as it is competitive. In order to succeed, entrepreneurs walk a fine line between staying frugal and investing in areas that will pay for themselves in time.
So, how do small businesses invest in tech without sinking all of their capital on an investment that will take so long to show any meaningful return that it constricts their cash flow and sends them into a spiral of debt from which it may never recover? A good place to start is by asking yourself these simple questions…
How will it improve my business?
Will the technological investment aid productivity and save you money on labor costs? Will it increase your output meaning that you will be able to manufacture in greater volumes? Will it improve the overall quality of my product? Will it make for a healthier, happier and more productive workforce? Of course, the nature of your business will determine the kind of tech you need. A petrochemical plant will need a good array of oil water separators, an accounting firm will need to invest in top notch data protection software. In any event, any investment in tech needs a clear and actionable plan for how it will be used to the benefit of the enterprise.
What sort of fiscal multiplier can I expect?
A fiscal multiplier is the amount of return you can expect on your investment in proportion to your expenditure. Let’s say you spend $10,000 on a new piece of equipment. This equipment improved productivity and increases your yield to the extent that it increases your profit margin by $15,000. Thus, the fiscal multiplier for that investment is 1.5. It’s paid for itself with an added 50% on top. And all within a year. Needless to say, that’s a pretty sound investment.
Do my competitors have it?
In an extremely competitive market, investing in tech can give you the edge you need over your competition. It’s simply a matter of keeping abreast of where your competitors are investing and how said investment seems to be benefiting their operation. This is why competitor analysis is so important.
How long will it take me and my employees to learn to use it?
Tech can be a real boon to your business, but it often comes with teething issues. Employees need to be trained on how to use the new tech optimally and there will be a transitional period within which productivity may be encumbered. It’s important to factor this interstice into your costings analysis.
Invest prudently in the right tech, however, and your business will grow from strength to strength and leave the competition in the dust.
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Walter G. is a software engineer with over 10 years of professional experience. When he isn't blogging or being a CTO he enjoys coding randomly complex things that he hopes many people will get a chance to use one day.